Beijing is turning to state-owned policy banks once again to help rescue an economy under strain, ordering them to provide 800 billion yuan ($120 billion) in funding for infrastructure projects.
The stimulus, announced at a State Council meeting chaired by Premier Li Keqiang, could help finance a significant chunk of infrastructure costs this year and give some relief to local governments grappling with plunging revenues.
President Xi Jinping has called for an all-out effort to boost infrastructure this year, turning to an old playbook of driving up growth through public investment. Funding the extra spending has proven to be tricky though, after a plunge in land sales and widespread Covid outbreaks battered government revenue.
“We think the three key ingredients for investment — projects, financing and incentive — are all falling into place this year,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “The additional 800 billion yuan loans from policy banks will help fill the financing gap if any.”
Standard Chartered forecasts infrastructure investment will grow 10-15% this year, although that may still not be enough to offset the headwinds to economic growth. Bloomberg Economics estimated China’s infrastructure spending came to 23 trillion yuan in 2021.
Beijing’s calls for faster implementation of growth-boosting policies have intensified since official data showed that economic activity contracted in April and unemployment rose sharply. High-frequency indicators suggest the decline continued in May, leading Li to warn last week of risks from a possible year-on-year contraction in the second quarter.
Nomura Holdings Ltd. estimates the government has a 6 trillion yuan funding gap this year, created in part by a sharp contraction in revenue from land sales, a key source of funding of infrastructure investment by local governments. The 800 billion yuan funding announced by the State Council accounts for nearly half of the 1.65 trillion yuan in new policy bank lending in 2021, economists led by Lu Ting wrote in a note.
Finding Support
China’s policy lenders include China Development Bank, the Agricultural Development Bank of China and the Export-Import Bank of China. They are considered key stabilizers of the economy, and are often called upon to provide financing support for big projects, including infrastructure.
In 2014, for example, the policy banks were asked to help provide funding to the nation’s shantytown renovation projects. They were also urged to step up financing for major investment projects earlier this year as part of China’s broader efforts to support businesses hit by Covid.
The State Council didn’t say in its latest announcement how the policy banks would fund the lending. The development banks’ main source of funds come from issuing bonds or loans from China’s central bank.
The banks may be able to raise the money by selling bonds — likely long-term ones with tenors of five, 10 or 20 years — to fund an expansion in credit, according to economists from Nomura, NatWest Group Plc. and Australia & New Zealand Banking Group Ltd.
And the People’s Bank of China could cut the reserve requirement ratio, or the amount of money banks have to keep in reserve, by another 50 basis points to support the financial market with liquidity, said Liu Peiqian, chief China economist at NatWest Group Plc.
Special Bonds
Policy bank-led funding could also alleviate pressure on the government to ramp up borrowing in other ways, such as selling special sovereign bonds.
“This has to an extent reduced the likelihood of issuing additional local government special bond or special sovereign bonds,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. Those special bonds have been advocated by some as a way to pay for extra stimulus to boost the economy, but they’d also be a risk, adding to the already rising national debt.
Despite the stimulus, China’s growth outlook will depend on how the government manages Covid outbreaks going forward. Economists forecast gross domestic product growth of 4.5% this year, well below the government’s target of about 5.5%. Some banks like Nomura are predicting growth as weak as 3.9%.
Covid cases have moderated in recent weeks, leading to an easing of the lockdown in Shanghai. Still, the government’s strict Covid Zero policy, which requires restrictions on activity wherever outbreaks occur, means that consumption is likely to remain muted.
“The Shanghai lockdown has been an outlier so far, but as a minimum we should expect more outbreaks requiring some level of restrictions,” Allan von Mehren, China economist at Danske Bank A/S, wrote in a note.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
